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Monday, July 10, 2017

Stocks Manage a Mildly Mixed Monday Finish

Charles Schwab: On the Market

Posted: 7/10/2017 4:15 PM ET

Stocks Manage a Mildly Mixed Monday Finish

U.S. stocks began the week mixed as tech listings outperformed on
light data following Friday's upbeat employment report, while the
markets await a heavy week of events, notably the unofficial start of Q2
earnings season and Fed Chair Yellen's Congressional testimony.
Treasuries advanced as the lone report from the domestic docket showed
consumer credit expanded more than expected. Gold and crude oil prices
were higher and the U.S. dollar was nearly flat. In light equity news,
ClubCorp agreed to be acquired by Apollo Management and Abercrombie
& Fitch announced that it terminated takeover talks

The Dow Jones Industrial Average (DJIA) dipped 6 points to 21,409, the
S&P 500 Index increased 2 points (0.1%) to 2,427, and the Nasdaq
Composite increased 23 points (0.4%) to 6,176. In moderate volume, 798
million shares were traded on the NYSE and 1.7 billion shares changed
hands on the Nasdaq. WTI crude oil gained $0.17 to $44.40 per barrel and
wholesale gasoline was flat at $1.50 per gallon. Elsewhere, the
Bloomberg gold spot price gained $1.57 to $1,214.03 per ounce, and the
Dollar Index—a comparison of the U.S. dollar to six major world
currencies—was mostly flat at 96.06.

Abercrombie & Fitch Co.
(ANF $10) fell after the company announced that it has terminated
discussions regarding a potential transaction and has determined that
the best path to enhance value for stockholders is the rigorous
execution of its business plan.

Economic and earnings data set to heat up this week

Consumer credit, released in the final hour of trading, showed
consumer borrowing advanced by $18.4 billion during May, well above the
$13.5 billion forecast of economists polled by Bloomberg, while April's
figure was adjusted higher to an increase of $12.9 billion from the
originally reported $8.2 billion. Non-revolving debt, which includes
student loans and loans for vehicles and mobile homes, climbed by $11.0
billion, while revolving debt, which includes credit cards, increased by
$7.4 billion.

Treasuries ticked higher as the yield on the 2-year note dipped 2 basis
points (bps) to 1.38% and the yield on the 10-year note declined 1 bp to
2.37%, while the 30-year bond rate was flat at 2.93%.

Although the economic front began slowly, this week's calendar will heat
up and is poised to garner heavy attention as the markets grapple with
what path the Fed's monetary policy normalization will take. Bond yields
have rebounded from depressed levels hit in mid-June and the U.S.
dollar has stabilized from lows hit to close out the first half of 2017.
Schwab's Chief Fixed Income Strategist Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer'
in the second half of 2017, we expect 10-year Treasury yields to remain
in a 2% to 2.5% range, consistent with the eight-year "lower for
longer" theme in the bond market. We believe the Federal Reserve to
continue to tighten monetary policy and reduce its balance sheet
gradually, assuming inflation doesn't slip further. Read more, including
how we feel investors should position themselves in this environment on
the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Inflation will come into focus, with the releases of the Producer Price Index (PPI) and Consumer Price Index (CPI), while key hard data will come in the form of retail sales, as well as industrial production and capacity utilization. Sentiment and business activity indicators will also be released, courtesy of the Fed's Beige Book, along with tomorrow's NFIB Small Business Optimism Index and Friday's preliminary July University of Michigan's Consumer Sentiment Index. However, this week's two-day Congressional monetary policy testimony by Fed Chairwoman Janet Yellen will likely headline the docket. Also, earnings season
is set to kick off with some major companies out of the financial
sector delivering results. For our latest look at financials and the
other major stock market sectors, see Schwab's Director of Market and
Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Christmas in July! (Status of the Consumer).

Additional reports expected on tomorrow's domestic docket include the Labor Department's Job Openings and Labor Turnover Survey (JOLTS),
with economists forecasting that the measure of unmet demand for labor
showed 5.95 million jobs were available to be filled during May, down
slightly from the 6.04 million posted the month prior and wholesale inventories, forecasted to have increased 0.3% m/m in May, matching the rise seen in April.

As noted in the latest Schwab Market Perspective: Smooth Sailing for Stocks?,
stocks have been drifting along near record highs and background
conditions remain relatively positive in the near term. But seasonal
tendencies remain a risk and volatility has picked up a bit, so
investors should be on alert for a summer pullback. The U.S. economy
continues to glide along, with subdued inflation, providing what
typically has been a good environment for stocks, though uncertainty
regarding future Fed actions has risen. Bond yields have ticked higher
and some commodities have recovered, but it's too early to say that the
reflation story is regaining credence. Read these articles on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Stocks in Asia finished mostly higher following Friday's gains in the
U.S. that followed a stronger-than-expected June nonfarm payroll report,
while the markets digested some mixed data in the region. Japanese
equities advanced with the yen losing ground on the U.S. jobs data and a
report that showed Japanese machine orders—a gauge of capital
spending—unexpectedly fell. Mainland Chinese stocks declined and shares
that traded in Hong Kong were higher after reports showed the nation's
CPI and PPI both rose roughly in line with expectations. Australian
securities increased and South Korean listings ticked higher. Indian
equities rallied to another record high. The markets shrugged off
heightened geopolitical concerns following last week's first
intercontinental ballistic missile (ICBM) test by North Korea and in the
wake of the G-20 Summit in Germany. For analysis if the global front,
see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks and his commentary 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks as we reach the halfway point of 2017on the International Investing page at www.schwab.com.

The international economic docket for tomorrow will be relatively light
with releases including machine tool orders from Japan, home loans and
business confidence from Australia and industrial production from Italy.

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